Activity in the industry fell in July for the first time in a year and a half due to the lack of orders

Activity in industry fell in July for the first time since January 2021. The main leading indicator of the manufacturing sector in Spain, the PMI index calculated by S&P Global, entered the field last month in which it warns of a “fall considerable” of the orders, “at a time of strong inflationary pressures and generalized economic uncertainty”, according to the analysis center.

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This indicator is compiled from the responses to the surveys sent to those responsible for purchasing in 400 companies in the industrial sector, and it is the first index that indicates the economic evolution in our country and in the rest of the economies. Above 50 points, the PMI indicates expansion of activity. Below, contraction (see graph).

The industrial or manufacturing PMI had not anticipated a contraction in activity since January last year, when the recovery phase that has marked the last few months after the historic shock of the COVID pandemic had not yet begun, and which led to GDP (product gross domestic) to grow by 1.1% in the second quarter of 2022, according to the advance made public this Friday by the National Institute of Statistics (INE).

"The manufacturing sector experienced the biggest drop in new orders in more than two years in July," explains S&P Global in the report that accompanies the publication of the July data. “Companies surveyed reported that sales have plummeted due to an increasingly uncertain environment,” he continues.

“The high prices and the persistence of the problems in the supply chains also affected the demand”, it affects. In this way, this reading of the PMI index confirms "the fears" of a recession in the eurozone and the downward revisions of economic growth that have been made the government itself and other institutions like the European Central Bank (ECB) in recent days due to “high inflation” and “the ongoing war in Ukraine”.

demand reduction

"Demand suffered a notable reduction, both in the national and international markets, which caused a contraction in production for the first time in a year and a half," insists S&P Global, adding that "since pending orders decreased markedly and destocking has now got under way, the short-term outlook for production is clearly on the downside.”

"This downward trend is also observed in the expectations of companies, which plummeted notably to a level similar to that observed last March, when the escalation of the conflict in Ukraine began," continues the analysis center.

"Companies are increasingly concerned about the economic recession in the coming months and, therefore, are taking increasingly defensive positions, as evidenced by job cuts, inventories and purchases," he observes according to the results of the surveys conducted between July 12 and 22. In fact, business confidence fell in July to one of the lowest levels since the height of the coronavirus pandemic, in the spring of 2020.

This negative view provided by the industrial PMI could be nuanced with respect to the economy as a whole with the service sector data that will be released this Wednesday, August 3.

In this context, the Government cut Friday economic growth forecasts for Spain in 2023, from 3.5% to 2.7%, during the presentation of the spending ceiling of the General State Budgets for next year, although he stressed that our country will follow a path of "strong economic growth." which will be above the rest of the economies of the European Union.

The Executive already lowered the growth forecasts for the Spanish economy last Aprilwhen it cut GDP growth for this year to 4.3% due to the impact of the war in Ukraine, compared to the previous 7%, while it lowered the rate to 3.5% for 2023.

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